Allied Irish Bank Plc v Counihan

• Jurisdiction: Ireland
• Judge: Mr Justice Max Barrett
• Judgment Date: 21 December 2016
• Neutral Citation: [2016] IEHC 752
• Docket Number: [2014 No. 2662S]
• Court: High Court
• Date: 21 December 2016

BETWEEN

ALLIED IRISH BANKS PLC

PLAINIFF

AND

PETER COUNIHAN

AND

MARY COUNIHAN

DEFENDANTS

[2016] IEHC 752

Barrett J.

[2014 No. 2662S]

THE HIGH COURT

Banking & Finance – non-payment of loan facilities – The Consumer Credit Act, 1995 – Business loan – Unfair terms – European Communities (Unfair Terms in Consumer Contracts Regulations) 1995 – Estoppel

Facts: The plaintiff sought an order of summary judgment against the defendants for non-payment of loan facilities advanced to the defendants to refinance the previous borrowings. The defendants asserted that they had acted on the representation of the bank personnel that in case of default, they would not enforce full debt against them. The defendants contended that the plaintiff was estopped from denying the statements of those bank personnel.

Mr. Justice Max Barrett refused to grant an order for summary judgment. The Court directed that since there was a factual dispute between the parties as to the kind of conversation that had taken place between the parties, the matter should go to a plenary hearing. The Court held that the power to grant summary judgment should be exercised with utmost care where it was clear that the defendants had no arguable defence.

JUDGMENT of Mr Justice Max Barrett delivered on 21st December, 2016.

I. Introduction

1 Mr Peter Counihan is a farmer. Ms Mary Counihan is his wife; she is a homemaker and does not work outside the family home. AIB comes to court seeking to enforce summarily a loan agreement of 5th February, 2009, that was executed between it and Mr and Ms Counihan. The loan agreement appears to have been a refinancing of previous borrowings that were extended to enable the Counihans to buy additional frontage to their existing farmstead. It is contended by the Counihans that each of them was acting as a consumer within the meaning of the Consumer Credit Act 1995 when they executed the loan agreement.

II. The Consumer Credit Act

2 The loan agreement between AIB and the Counihans is documented as a business loan. Notwithstanding that it was executed with two parties, both of whom now claim to be consumers within the meaning of the Act of 1995, the loan agreement does not purport to comply with the requirements of that Act. So, for example, notwithstanding that the loan agreement appears to be a “housing loan” within the meaning of the Act of 1995, the statement of important information required under s.129 and the Third Schedule of the Act is entirely absent. Such a breach, if it arises, may have consequences for AIB under s.12 of the Act. However, it does not appear that any direct consequences flow under the Act of 1995 as regards the enforceability of the loan consequent upon such a breach, if such a breach arises.

III. The Unfair Terms in Consumer Contract Regulations

i. Overview.

III. The Unfair Terms in Consumer Contract Regulations

3 Where a bank's customer is a consumer, the provisions of the applicable banker-customer relationship fall to be construed, inter alia, by reference to the European Communities ( Unfair Terms in Consumer Contracts Regulations) 1995, as amended. These Regulations were adopted in the first instance to implement into Irish law Council Directive 93/13/EEC of 5th April, 1993 on unfair terms in consumer contracts (O.J. L95/29, 21. 4.1993). They apply, per reg. 3(2), ‘ to any term in a contract concluded between a seller of goods or supplier of services and a consumer which has not been individually negotiated’. A ‘ consumer’, per reg. 2 of the Regulations of 1995 is ‘ a natural person who is acting for purposes which are outside his business’, the term ‘ business’ being further defined, again in reg. 2, as including ‘ a trade or profession’.

4 Regulation 3(4) of the Regulations of 1995 provides that a term shall always be regarded as having not been individually negotiated where it has been drafted in advance and the consumer has not therefore been able to influence its substance, particularly in the context of a pre-formulated contract. Regulation 6(1) provides that an unfair term in a contract concluded by a seller of goods or supplier of services with a consumer is not binding on the consumer. However, under reg. 6(2) a contract containing an unfair term continues to bind the parties thereto if it is capable of continuing in existence without the unfair term.

5 The term ‘ services’ is not defined in the Regulations of 1995. However, the court finds it difficult to see how credit institutions, being among the principal actors in the financial services sector, could convincingly contend, if they sought to contend, and AIB has not sought so to contend in the within application, that in their retail deposit-taking and lending activities they are not providing services to their customers within the meaning of the Regulations.

ii. The Aziz case.

6 The court proceeds now to consider the Aziz case ( Aziz v. Caixa d'Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) ( Case C-415/11, Judgment of 14th March, 2013), to which it has been referred by counsel for Mr and Ms Counihan.

7 On 19th July, 2007, Mr Aziz concluded with Catalunyacaixa, a Spanish bank, a loan agreement secured by a mortgage on his family home. Clause 15 of the mortgage loan agreement, which made provision in relation to defaults, stated that Catalunyacaixa had the right to bring enforcement proceedings to reclaim any debt arising, and, for the purpose of those proceedings, could quantify the amount due by submitting an appropriate certificate. Mr Aziz defaulted on his loan obligations and, on 11th March 2009, Catalunyacaixa instituted recovery proceedings against him. Those proceedings were successful, Mr Aziz was sent an order for payment, but he neither complied with nor objected to this order. So matters moved to the enforcement stage, and now Mr Aziz took action. He applied to court for a declaration seeking (a) the annulment of cl. 15 of the mortgage loan agreement on the grounds that it was unfair (by reference to the applicable Spanish legislation implementing Directive 93/13/EEC), and (b) the consequent annulment of the enforcement proceedings.

8 The court before which Mr Aziz brought his application referred a number of questions to the Court of Justice for preliminary ruling. It is the first question that is of particular interest in the context of the within application, and the Court of Justice's comments and observations in the context of same, at paras. 43 to 46 of its judgment:

‘43 By its first question, the referring court wishes to know, essentially, whether Directive 93/13 must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which, while not providing in mortgage enforcement proceedings for grounds of objection based on the unfairness of a clause contained in a contract between a consumer and a seller or supplier, does not allow the court before which declaratory proceedings have been brought, which does have jurisdiction to assess whether such a clause is unfair, to grant interim relief in order to guarantee the full effectiveness of its final decision.

44 In replying to that question, it should be noted first that the system of protection introduced by the directive is based on the idea that the consumer is in a weak position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge….

45 As regards that weaker position, Article 6(1) of the directive provides that unfair terms are not binding on the consumer. As is apparent from the case-law, that is a mandatory provision which aims to replace the formal balance which the contract establishes between the rights and obligations of the parties with an effective balance which re-establishes equality between them….

46 In that context, the Court has already stated on several occasions that the national court is required to assess of its own motion whether a contractual term falling within the scope of the directive is unfair, compensating in its own way for the imbalance which exists between the consumer and the seller or supplier, where it has available to it the legal and factual elements necessary for that task…’.

[Emphasis added].

9 A number of points appear to the court to arise from the above-quoted text.

10 First, the Court of Justice's observations appear to contemplate a court, even in an adversarial system of justice, acting in an inquisitorial manner.

11 Second, counsel for AIB suggested that the above-mentioned duty ought to be construed by reference to the particular facts of Aziz. However, it appears to the court that this, with respect, cannot be so. As is apparent even from the above-quoted text, Aziz is but the latest case in...